Option Investor
Newsletter

Daily Newsletter, Saturday, 9/26/2009

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

Cooling Off Period

by James Brown

Click here to email James Brown

Stocks are correcting. The question is where will money managers step in to buy the dip. The third quarter ends on Wednesday, September 30th and the markets are poised to deliver one of their best quarters in decades. We've come a long way from the S&P 500 lows near 870 in early July. With the S&P 500 at 1,044 we're up about 20% from the July lows and up about 13.6% for the quarter thus far. Did the end of quarter window dressing already occur or will the next three days see a bounce?

Last week I warned readers that stocks were overbought and looked ready to relax. We were watching potential support at 1,040 and 1,020 on the S&P 500 and the index hit 1,041 on Friday morning. Our hypothesis hasn't changed. Money managers should still be chasing performance through the end of October, which is year-end for many funds. That should keep the pull backs shallow. A dip toward 1,020 on the S&P 500 is close to a 5.5% decline form its recent highs. That's not too serious and could provide us a new entry point for longer-term LEAPS positions.

We are going to need to see another round of positive economic data to reinforce the market's current optimism for the economic rebound. Fortunately this week has plenty of data to help re-ignite the rally. Monday will bring the final look at Q2's GDP numbers. Analysts are expecting a slight revision down from -1.0% to -1.1%. On Wednesday we'll get the Chicago ISM report, which will prep the markets for the national ISM figures on Thursday. Of course the real focus will be on Friday's non-farm payrolls data. Everyone remains worried about the labor market and while we're hopeful about seeing improvement the general consensus is that unemployment will reach more than 10% before labor conditions improve.

I would not be that alarmed by all the technicians pointing at last Wednesday's bearish reversal pattern. Yes, it's a reversal but we were due for a correction. A one or two week pull back would be healthy. The correction might last until Q3 earnings begin in the middle of October. As long as the S&P 500 holds above the 1,000 level we should be fine. Imagine this pull back as a cooling off period before stocks make a run at the holidays.

Chart of the S&P 500 Index:

LONGER TERM OUTLOOK

Previous Comments on my Long-Term Outlook:

My long-term outlook has not changed. I still expect the economy to see a double-dip, "W"-shaped rebound with the second dip in 2010. Lousy consumer spending, rising foreclosures, and lagging job growth will be the main culprits. A few weeks ago there were some comments out of the U.S. Treasury concerning foreclosures. The Obama administration's HAMP loan modification program can only help a certain number of homeowners and one official said that even if the HAMP program was a total success we should still expect millions of new foreclosures. This only reinforces my own belief that we will see another tidal wave of foreclosed homes in 2010. Some analysts are forecasting upwards of six million foreclosures in the next three years. What is that going to do to consumer confidence and consumer spending? It's not going to help! You can review my long-term outlook here. It's the second half our my "Two Months Left" commentary.

~ James Brown


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The market has begun to correct after hitting new highs for 2009. A pull back is both normal and healthy. Our bias remains bullish but the next couple of weeks could be rough. Fortunately we have several stocks on the watch list with triggers to buy a significant pull back.

Currently we have thirteen stocks on our watch list.

BEAV - BE Aerospace Inc., trigger: $15.00
CHK - Chesapeake Energy Corp., trigger 23.50
COST - Costco Wholesale, trigger 51.50
ERJ - EMBRAER - Empresa Brasileira de Aeronáutica, trigger $18.50
ESV - ENSCO Intl. Inc., trigger 38.00
FWLT - Foster Wheeler, trigger 29.00
IGT - Intl. Game Tech., trigger $17.50
MEE - Massey Energy Corp., trigger $23.50
MTL - MECHEL OAO, trigger 13.25
MTW - Manitowoc Inc., trigger 7.75
SPW - SPX Corp., trigger 58.50
TXT - Textron Inc., trigger 15.25
X - United States Steel Corp., trigger 37.50

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a dropped play this week.



Jim's portfolio and updates has been included in the normal play updates section.

New Plays

Eyeing the Watch List

by James Brown

Click here to email James Brown


This Correction is Normal


Editor's Note:

This pull back in the stock market is good news. Stocks had gotten a little ahead of themselves. Odds are they will continue to correct a bit heading towards the beginning of earnings season. That's fine with me. We have several stocks on the watch list with triggers to buy a significant pull back.

No new plays tonight. I would keep my eyes on the watch list for our next trade, especially since I just added two more candidates.


Play Updates

Double Check Your Stops

by James Brown

Click here to email James Brown

The market has begun to correct and it could last another couple of weeks. Now is a good time to double check your stop loss placement.


Closed Plays


None, there were no closed plays.


Play Updates


ACGY $12.39 +0.54 -- Acergy S.A.

ACGY continues to show relative strength and closed at new highs for 2009. More conservative traders may want to use a tighter stop loss.

I'm not suggesting new LEAPS positions at this time. Our plan is to exit in the $14.50-15.00 zone although I'm starting to suspect that ACGY could go higher.

April 25th, 2009 - entry price on ACGY @ 7.61, option @ 1.05
symbol: QLS-AB, 2010 JAN $10 LEAP call - current bid/ask $2.75/3.10
-stop loss on ACGY @ 7.60

Chart of ACGY


ACI $21.86 -0.25 -- Arch Coal Inc.

Many of the coal stocks have started to correct. I would expect a dip back toward $20.00, which as broken resistance should be new support.

Our long-term target is the $30 region. If you do launch new positions I would buy the 2010 January $20 calls or 2011 January $25 calls rather than the ones originally listed below.

May 14th, 2009 - entry price on ACI @ 16.00, option @ 1.30
symbol: ACI-AE, 2010 JAN $25 LEAP call - current bid/ask $1.50/1.60
-stop loss on ACI @ 15.95

-or-

May 14th, 2009 - entry price on ACI @ 16.00, option @ 2.40
symbol: OSE-AF, 2011 JAN $30 LEAP call - current bid/ask $2.85/3.00
-stop loss on ACI @ 15.95

Chart of ACI:


ANR $34.87 -0.98 - Alpha Natural Resources, Inc.

ANR, another material-related stock, has pulled back from $40 toward support near $35 and it 50-dma.

We still have a trigger at $30.50 to buy the second half of our LEAPS position but that may not happen. We might want to up that toward $32.00. Our long-term target is the $45.00-50.00 zone.

Aug. 25th, 2009 - entry price on ANR @ 34.00, option @ 5.10
symbol: HIC-AG, 2010 JAN $35 LEAP call - current bid/ask $6.40/6.60
-stop loss on ANR @ 29.50

Symbol just changed from ANR-AG to HIC-AG

bought 1/2 LEAP position on 08/25/09 (option price @ 5.10)
plan to buy 2nd half when ANR hits $30.50.

-or-

Aug. 25th, 2009 - entry price on ANR @ 34.00, option @ 7.00
symbol: VJV-AH, 2011 JAN $40 LEAP call - current bid/ask $7.20/7.80
-stop loss on ANR @ 29.50
bought 1/2 LEAP position on 08/25/09 (option price @ 7.00)
plan to buy 2nd half when ANR hits $30.50.

Chart of ANR:


BAC $16.60 -0.38 - Bank of America Corp.

Financials stocks have been leading the market lower. BAC has been under performing the last three days after its failed rally near $18.00. Last week I suggested that BAC could retest the $16.00 level and that appears to be the next stop near its 50-dma.

More conservative traders may want to take some money off the table now and scale back in on a dip. However, I want to remind readers that this is a long-term, two-year trade. Our exit target is the $30-40 zone.

Jan 25th, 2009 - entry price on BAC @ 6.24, option @ 2.38
symbol: VBA-AB, JAN 2011 $10 LEAP call - current bid/ask $7.90/8.00
-stop loss on BAC @ 9.75

Chart of BAC


BG $61.07 +0.23 -- Bunge Limited

The intermediate downtrend hasn't changed. BG has broken down under its long-term trendline of higher lows (support). If the market continues to sink BG will most likely break the $60.00 level. If that happens then look for a test of the 200-dma currently near $56.75, which would stop us out. More aggressive traders may want to put their stops under the $55.00 mark.

I'm not suggesting new positions at this time. Wait for a move over $65.00 before considering new positions. Our target is the $85-90 zone. We have a tight stop loss at $57.49.

Sep 15th, 2009 - entry price on BG @ 63.00, option @ 5.90
symbol: BGW-DN, 2010 APR $70 LEAP call - current bid/ask $3.70/4.00
-stop loss on BG @ 57.49

Chart of BG:


CLF $32.37 -0.23 -- Cliffs Natural Resources Inc.

CLF is starting to correct after failing near $35.00. Wait for a bounce in the $28.00-30.00 zone before considering new bullish positions.

Our long-term target is the $40.00-45.00 zone. More aggressive traders may want to aim for $50. Readers might also want to consider the 2011 January LEAPS instead.

Sept. 5th, 2009 - entry price on CLF @ 26.19, option @ 4.84
symbol: CLF-AE, 2010 JAN $25 LEAP call - current bid/ask $ 8.70/ 8.90
-stop loss on CLF @ 22.24 (FYI: Gap open entry)

Chart of CLF:


CNX $44.29 -1.09 -- Consol Energy Inc.

CNX almost made it to $50.00 last week but shares have begun to correct. I see potential support at $42.00 and again near $40.00. I'd consider new bullish positions on a bounce near $40.00.

CNX has already hit our first target at $48.50. We will plan to sell the second half or our position at $57.50.

Sep 1st, 2009 - entry price on CNX @ 36.50, option @ 5.75
symbol: CNX-AG, 2010 JAN $35 LEAP call - current bid/ask $11.00/11.20
-stop loss on CNX @ 34.75

Target hit 09/16/09 @ 48.50, option price $14.50 (+152%)

-or-

Sep 1st, 2009 - entry price on CNX @ 36.50, option @ 7.80(estimate)
symbol: VTL-AH, 2011 JAN $40 LEAP call - current bid/ask $12.60/13.10
-stop loss on CNX @ 34.75

Target hit 09/16/09 @ 48.50, option price $15.40 (+97%)

Chart of CNX


CRS $23.91 -0.56 -- Carpenter Technology Corp.

Nothing has changed from my previous comments. I'm still expecting a pull back toward the $22.00-20.00 zone and would consider new bullish positions on a bounce near $20.00. Our long-term target is the $35.00-40.00 zone.

Sep 1st, 2009 - entry price on CRS @ 20.50, option @ 3.10
symbol: CRS-CD, 2010 MAR $20 LEAP call - current bid/ask $5.40/5.60
-stop loss on CRS @ 17.50

Chart of CRS:


DISH $18.82 +0.73 -- Dish Network Corp.

DISH continues to show relative strength. I'm not suggesting new positions at this time. If the stock does correct look for support near $17.00 or the 100-dma. Our long-term target is the $25.00-30.00 zone.

August 22nd, 2009 - entry price on DISH @ 17.18, option @ $3.20
symbol: HSW-AC, 2010 JAN $15 call - current bid/ask $4.40/4.60
-stop loss on DISH @ 15.45.

Chart of DISH:


DO $91.25 -0.39 -- Diamond Offshore

DO's recent pull back is now testing its long-term trendline of higher lows and round-number support at $90.00. Readers will want to double check how much risk their taking and reconsider raising their stop loss. I'm leaving the stop at $79.45 for now but you might want to raise your stop closer to $84-85.

Our first target is $109.00. We can expect resistance about every $5.00 at $95, $100, etc. Readers might want to consider the 2011 January calls if you're launching new positions.

FYI: New January 2010 options have been added with the normal DO- root symbol. If you're going to buy new option positions I'd use these new symbols. The new 2010 January $90 call is DO-AA. The new 2010 January $100 call is DO-AC.

If you're curious about the KWJ- root symbol the CBOE created them back in February 2009 to account for DO's special cash dividend in March 2009. There was another special cash dividend in July 2009 and the KWJ series now represents 100 shares of DO plus $562.50 in cash.

Sep 2nd, 2009 - entry price on DO @ 86.50, option @ 12.30
symbol: KWJ-AR, 2010 JAN $90 LEAP call - current bid/ask $11.60/11.90
-stop loss on DO @ 79.45

-or-

Sep 2nd, 2009 - entry price on DO @ 86.50, option @ 5.20
symbol: KWJ-AT, 2010 JAN $100 LEAP call - current bid/ask $6.30/6.50
-stop loss on DO @ 79.45

Chart of DO:


EMR $38.92 -0.46 -- Emerson Electric Co.

EMR has begun to correct and readers may get another entry point soon. I would still consider new bullish positions on a dip in the $38.00-37.00 region. EMR doesn't move super fast so I'm listing the 2011 LEAPS.

Sept. 8th, 2009 - entry price on EMR @ 38.00, option @ $4.50
symbol: VHH-AH, 2011 JAN $40 call - current bid/ask $4.50/4.80
-stop loss on EMR @ 33.50.

Chart of EMR:


FAS $77.69 -2.39 - Direxion Fincl.Bull 3x ETF

FAS gave us another shot at profits near $90.00 before correcting with the financials this week. The next couple of weeks could be volatile as the market slides toward support.

I am not suggesting new bullish positions in FAS at this time.

Previous Comments on FAS:
Currently we have sold one third of our position at $60.00 (pre-split price of $12.00) and we plan to sell another third at $120.00. Honestly, I'm thinking we may want to take profits at $90.00 but we'll make that decision when the FAS gets there. We'll re-evaluate our final target for the last third of our position as needed. FYI: On July 9th, 2009 the FAS performed a 1:5 reverse split.

FYI: The FAS is based off and moves with the Russell 1000 Financial Services index.

Our plan called for buying the ETF instead of the options.

Current position in the FAS = $2.64 entry (stop loss: 7.00)
post-split prices are: $13.20 entry (stop loss: 35.00)

Exit 1/3 position @ 60.00 (+354%) /pre-split: 12.00

Chart of FAS

Chart of RIFIN (Russell 1000 financial services)


FCX $66.69 -1.41 - Freeport McMoran

Now that the dollar is trying to bounce traders are rushing in to take profits in the mining stocks. Gold was unable to hold the $1,000 level and copper broke down from a multi-week consolidation.

Short-term the trend in FCX is down and I'd expect a drop toward the $60 level. FCX has already hit our first target at $66.00. Our second and final target is $77.00. More conservative traders may want to use a stop closer to $55 or higher.

June 22nd, 2009 - entry price on FCX @ 46.00, option @ 6.00
symbol: FCX-AK, 2010 JAN $55 LEAP call - current bid/ask $14.70/14.75
-stop loss on FCX @ 49.95 *new*

09/05/09 - Take Profits (sell half) at $66.00, option @ 15.00 (+150%)

-or-

June 22nd, 2009 - entry price on FCX @ 46.00, option @ 10.00
symbol: OBQ-AL, 2011 JAN $60 LEAP call - current bid/ask $18.10/18.85
-stop loss on FCX @ 49.95 *new*

09/05/09 - Take Profits (sell half) at $66.00, option @ 18.50 (+85%)

Chart of FCX:


FSLR $152.87 + 2.25 -- First Solar

The rally has stalled at resistance. While it seems like the next move should be down I wouldn't bet on it.

We're not suggesting new positions at this time. At the moment we're long the 2010 January $100 put and we have a covered call play that should be fine if FSLR stays above $100.

Covered Call position:

Long 100 shares of FSLR @ $128.00
Short 2010 $150 LEAPS Call LZL-AA @ $40.70
Profit if called is $40.70 in option premium + $22 in stock (+49%)

Put Spread position:

Long 2010 $100 LEAPS Put LQM-MT @ $32.90
Short 2010 $250 LEAPS Put LZL-MJ @ $135.70, net credit $103

- Update 08/15/09 -
Cover the 2010 $250 Put at $109.40. Keep the $100 put.

Currently the 2010 Jan. $100 put is worth (bid) $2.65.
If you're curious the 2010 Jan. $150 call is at $20.20.

Chart of FSLR


GT $16.02 -0.46 -- Goodyear Tire & Rubber Co.

Shares of GT are still fading and the stock looks headed toward the 50% Fibonacci retracement (see chart).

I'm not suggesting new LEAPS positions at these levels. We have two targets. The plan is to sell half at $22.75 and half at $26.75.

June 6th, 2009 - entry price on GT @ 12.94, option @ 2.20
symbol: GT-AC, 2010 $15 LEAP call - current bid/ask $2.50/2.60
-stop loss on GT @ 11.90
-or-
June 6th, 2009 - entry price on GT @ 12.94, option @ 2.65
symbol: VYR-AD, 2011 $20 LEAP call - current bid/ask $2.75/3.20
-stop loss on GT @ 11.90

Chart of GT:


HOS $26.41 +0.10 -- Hornbeck Offshore Services

HOS has spent several days consolidating under resistance at $28.00. Now shares look headed for support near $24.00. We might want to consider new bullish positions if HOS bounces near the 50-dma. Our long-term target is $35.00.

June 27th, 2009 - entry price on HOS @ 21.20, option @ 4.90
symbol: HOS-AD, 2010 JAN $20 LEAP call - current bid/ask $6.60/7.00
-stop loss on HOS @ 19.95
-or-
June 27th, 2009 - entry price on HOS @ 21.20, option @ 2.70
symbol: HOS-AE, 2010 JAN $25 LEAP call - current bid/ask $3.30/4.20
-stop loss on HOS @ 19.95

Chart of HOS:


INTC $19.37 -0.17 -- Intel Corp.

The rally in the semiconductors has stalled and Intel looks ready to lead them lower. INTC should find support near $18.00 and again at $17.00. I am not suggesting new long-term positions at this time. Our long-term target is the $24-26 zone.

FYI: Shares of Intel don't move very fast. Readers might want to consider turning this play into a calendar or diagonal spread to further maximize your gains.

June 13th, 2009 - entry price on INTC @ 16.31, option @ 1.36
symbol: VNL-AD, 2011 LEAP $20 call - current bid/ask $2.47/2.48
-stop loss on INTC @ 15.90.

Chart of INTC:


LNN $41.74 -1.09 -- Lindsay Corp.

LNN has pulled back toward technical support at its 50-dma and exponential 200-dma. While it might be tempting to consider new positions here I would wait.

We want to sell half our LEAPS position at $49.50 and half at $59.50.

August 7, 2009 - entry price on LNN @ 41.55, option @ 8.80
symbol: NRR-AG, 2010 JAN $35 LEAP call - current bid/ask $ 7.90/ 8.60
-stop loss on LNN @ 34.50
-or-
August 7, 2009 - entry price on LNN @ 41.55, option @ 6.00
symbol: NRR-AH, 2010 JAN $40 LEAP call - current bid/ask $5.00/5.60
-stop loss on LNN @ 34.50

Chart of LNN:


MDR $24.84 -0.96 - McDermott Intl. Inc.

MDR has broke down from its narrow bullish channel. A normal correction would bring it back toward the $23.50 region. I'm not suggesting new positions at this time.

We want to sell 50% to 75% of our position at $29.75. We'll sell the remainder at $34.00. FYI: The Point & Figure chart has a $38 target.

April 4th, 2009 - entry price on MDR @ 15.56, option @ 2.70
symbol: MDR-AD, 2010 $20 LEAP call - current bid/ask $5.80/6.00
-stop loss on MDR @ 19.00

Chart of MDR:


MSFT $25.55 -0.39 -- Microsoft Corp.

After a three-week rally MSFT looks a little extend. Look for the stock to drift back toward the simple 50-dma. I'm not suggesting new long-term positions at this time.

This should be a long (18-month) trade. MSFT doesn't move that fast (normally). Investors might want to turn this into a calendar or diagonal spread, selling calls against your LEAPS position. My long-term target is the $30 region.

June 2nd, 2009 - entry price on MSFT @ 21.60, option @ 2.20
symbol: VMF-AE, 2011 Jan. $25 call - current bid/ask $3.50/3.60
-stop loss on MSFT @ 19.95.

Chart of MSFT:


MT $36.97 -1.23 -- ArcelorMittal

Some of the metal stocks have really begun to correct and MT sank sharply toward its long-term trend of higher lows (support0. The stock should bounce soon.

More conservative traders may want to raise their stops (near $32.50 or $34.50 could work). Our long-term target is the $50 region.

June 17th, 2009 - entry price on MT @ 30.50, option @ 2.70
symbol: MT-AH, JAN 2010 $40 call - current bid/ask $2.80/2.95
-stop loss on MT @ 29.50

-or-

June 17th, 2009 - entry price on MT @ 30.50, option @ 2.00
symbol: MT-AJ, JAN 2010 $50 call - current bid/ask $0.65/0.75
-stop loss on MT @ 29.50

Chart of MT:


NYX $28.02 -0.42 -- NYSE Euronext

NYX has also pulled back to significant support. A breakdown here would definitely be bearish. More conservative traders may want to raise their stop loss. I'm not suggesting new positions at this time. Our long-term target is the $35.00-40.00 zone.

Apr. 11th, 2009 - entry price on NYX @ 21.51, option @ $1.81
-- NZV-AD, 2010 $30.00 LEAP call - current bid/ask $1.61/1.65
-stop loss on NYX at $22.00

Chart of NYX:


PBR $44.27 +0.33 -- Petroleo Brasiliero

PBR is correcting after testing its 2009 highs last week. I would expect a dip back toward $41.00 and its trendline of support. I'm not suggesting new long-term positions at this time. The plan is to sell half our position at $49.50 and the rest at $57.50.

Apr. 4th, 2009 - entry price on PBR @ 35.10, option @ $2.80
symbol: PMJ-AJ, 2010 $50.00 LEAP call - current bid/ask $1.55/1.65
-stop loss on PBR at $33.50

Chart of PBR:


PCU $29.97 -0.27 - Southern Copper Corp.

PCU has held up reasonably well considering the breakdown in copper prices last week. Unfortunately I would not expect PCU to do so well this week. The stock has produced a three-day bearish reversal patter (outlined on the chart). We can probably expect a correct back to the $27-25 zone. I'm not suggesting new long-term positions at this time. More conservative traders may want to exit completely right here!

PCU has already hit our first target at $29.75. We plan to sell the second half of our position at $34.00.

April 20th, 2009 - entry price on PCU @ 19.00, option @ 1.95
symbol: PCU-AE, JAN 2010 $25 LEAP call - current bid/ask $6.10/6.30
-stop loss on PCU @ 22.00

Target Hit @ 29.75 on 08/24/09. Sold 1/2 at $6.00 (+207%)

Chart of PCU:


PEP $58.68 +0.14 -- PEPSICO Inc.

If the market continues to slide PEP may dip toward the $56.00 level. I'm not suggesting new positions at this time. More conservative traders might want to raise their stops toward the $55 region. Our long-term target is the $65-70 zone. We'll use a stop loss at $51.50. This is an 18-month bet.

FYI: PEP is due to report earnings on October 8th.

July 7th, 2009 - entry price on PEP @ 57.25, option @ $4.50(estimate)
symbol: VP-AL, 2011 $60.00 LEAP call - current bid/ask $5.00/5.40
-stop loss on PEP at $51.50

Chart of PEP:


RAI $44.69 +0.26 -- Reynolds American Inc.

RAI's slow ride up has turned into a slow slide down. Nothing has changed from my prior comments. A normal Fibonacci retracement of the June-August rally would produce a dip towards the $43.00 or $41.75 levels.

I'm not suggesting new LEAPS positions at this time. Wait and watch for support near $42.00. We want to take some money off the table at $49.50 (sell half) and exit completely at $57.50.

July 24th, 2009 - entry price on RAI @ 42.50, option @ $1.45(estimate)
symbol: RAI-BI, 2010 FEB $45.00 LEAP call - current bid/ask $2.30/2.45
-stop loss on RAI at $39.75

or

July 24th, 2009 - entry price on RAI @ 42.50, option @ $4.50(estimate)
symbol: OWO-AH, 2011 JAN $40.00 LEAP call - current bid/ask $6.20/6.90
-stop loss on RAI at $39.75

Chart of RAI:


RIG $83.19 -0.04 -- Transocean Ltd.

Oil service stocks have been held hostage by the sell-off in oil. If the drop in oil continues we can expect RIG to slide toward its trendline of higher lows. I'm not suggesting new positions at this time. More conservative traders may want to place their stop loss closer to $75.00. Currently our upside target is $98.00.

July 3rd, 2009 - entry price on RIG @ 70.50, option @ 5.40
symbol: RIG-AP, JAN 2010 $80 call - current bid/ask $ 8.80/ 9.10
-stop loss on RIG @ 69.95.

-or-

July 3rd, 2009 - entry price on RIG @ 70.50, option @ 3.90
symbol: RIG-AZ, JAN 2010 $85 call - current bid/ask $6.30/6.50
-stop loss on RIG @ 69.95.

Chart of RIG:


SLB $59.48 +0.32 -- Schlumberger Ltd.

SLB is another oil service stock correcting. Shares should have short-term support near $58.00. Another bounce near $55 and its 100-dma may be a new entry point.

Currently our exit strategy has three parts. The plan was to sell one third of our position at $59.00, which was originally our first target. We'll sell another one third at $69.00. We'll exit our final third at $77.50.

April 20th, 2009 - entry price on SLB @ 45.01, option @ 3.00
symbol: SLB-AL, JAN 2010 $60 LEAP call - current bid/ask $5.10/5.30
-stop loss on SLB @ 49.90

1st exit @ $59.00 (1/3 of position) option @ $7.25 (+141% estimate)

Chart of SLB:


TEX $19.55 -0.20 -- Terex Corp.

TEX is holding up pretty well. I would still look for a dip near $18.00 and its exponential 200-dma. Our upside target is the $28.00-30.00 zone.

Sept. 11th, 2009 - entry price on TEX @ 18.25, option @ 4.40
symbol: HAG-AC, JAN 2010 $15 LEAP call - current bid/ask $5.40/5.60
-stop loss on TEX @ 14.25

-or-

Sept. 11th, 2009 - entry price on TEX @ 18.25, option @ 4.10
symbol: VXQ-AD, JAN 2011 $20 LEAP call - current bid/ask $4.90/5.40
-stop loss on TEX @ 14.25

Chart of TEX:


UYG $5.67 -0.09 - ProShares Ultra Financials (2x) ETF

The financials lead the market higher and now they're leading the market lower. I still expect pull back to be shallow so watch the $5.00 zone for the UYG.

More conservative traders may want to raise their stop toward $4.00. I am not suggesting new positions at this time.

Editor's Note: The idea is to hold this ETF as a long-term investment but experienced investors may want to trade it by taking profits now and re-entering on a pull back.

Don't forget that the UYG trades off the DJUSFN index.

The plan is to hold the UYG for 18 to 24 months or longer. We'll evaluate potential exit points along the way. It's true that as a leveraged ETF there will be slippage in the daily performance between UYG and the underlying index.

Our strategy called for buying the ETF instead of the options.

Current position in the UYG = $1.50 entry (stop loss: 3.20)

Chart of UYG:


VOD $22.77 -0.24 -- Vodafone Group

VOD has begun to correct after hitting new 2009 highs last week. Nothing has changed from my prior comments. We can expect a pull back with short-term support at $22.00 and strong support in the $21-20 zone. I'm not suggesting new long-term positions at this time. Our target is the $27.50 region.

July 10th, 2009 - entry price on VOD @ 18.25, option @ 1.10
symbol: VOD-AD, 2010 JAN $20 LEAP call - current bid/ask $3.00/3.20
-stop loss on VOD @ 17.85

Chart of VOD:


WFR $17.29 -0.39 -- MEMC Electronic Materials Inc.

Uh-oh! I've gone from relief at the rally in WFR back to worry. The semiconductors have been under performing. Plus, if oil is sinking the solar stocks tend to follow. I'm not suggesting new positions at this time. Our long-term target is the $30.00 region.

June 23rd, 2009 - entry price on WFR @ 17.50, option @ 2.50
symbol: CJC-AD, 2010 JAN $20 LEAP call - current bid/ask $1.15/1.25
-stop loss on WFR @ 14.95

-or-

June 23rd, 2009 - entry price on WFR @ 17.50, option @ 3.43
symbol: ZET-AE, 2011 JAN $25 LEAP call - current bid/ask $1.95/2.30
-stop loss on WFR @ 14.95

Chart of WFR:


XIDE $7.76 +0.03 Exide Technologies

XIDE was way over due for some profit taking and it finally hit last week. Shares slipped to $7.18 on Friday. Yet the big bounce from its intraday lows almost looks like a short-term bullish entry point.

I am not suggesting new long-term positions at this time. Our long-term target is $12.00.

Sep 2nd, 2009 - entry price on XIDE @ 6.50, option @ 1.25
symbol: FRU-CU, 2010 MAR $7.5 call - current bid/ask $1.60/1.80
-stop loss on XIDE @ 4.85

-or-

Buy the stock @ 6.50, stop loss at $4.85

Chart of XIDE:



Watch

Another Week or Two

by James Brown

Click here to email James Brown


New Watch List Entries

CHK - Chesapeake Energy Corp.

TXT - Textron Inc.


Active Watch List Candidates

BEAV - BE Aerospace Inc.

Cost - Costco Wholesale

ERJ - EMBRAER - Empresa Brasileira de Aeronáutica

ESV - ENSCO Intl. Inc.,

FWLT - Foster Wheeler

IGT - Intl. Game Technology

MEE - Massey Energy Corp.

MTL - MECHEL OAO

MTW - Manitowoc Inc.

SPW - SPX Corp.

X - United States Steel Corp.


Dropped Watch List Entries

None. We did not drop any candidates.


New Watch List Candidates:

CHK $27.53 -0.29 -- Chesapeake Energy Corp.

CHK is a natural gas company and its stock has been doing surprisingly well considering the multi-year lows for natural gas. CHK hit new 2009 highs last week but has begun to correct with the rest of the energy sector. With natural gas likely forming significant lows when the commodity finally turns around it could certainly fuel a significant rally for CHK. Right now CHK is still overbought. I am suggesting investors buy LEAPS on a dip at $23.50. We'll use a stop loss at $19.90. Our long-term target is $40.00.

Company Info:
We’re one of the largest producers of natural gas in the nation and the most active driller of new wells in the U.S. Headquartered in Oklahoma City, our strategy is focused on discovering, acquiring and developing conventional and unconventional natural gas reserves onshore in the U.S., primarily in the "Big 4" natural gas shale plays: the Barnett Shale of north-central Texas, the Haynesville Shale of East Texas and northwestern Louisiana, the Fayetteville Shale of central Arkansas and the Marcellus Shale of the northern Appalachian Basin. (source: company press release or website)

Buy-the-Dip trigger: $23.50

BUY the 2011 January $25 calls (symbol: VEC-AE)

Chart of CHK:


TXT $17.88 -0.46 -- Textron Inc.

TXT is one of the multi-industry conglomerates that analysts were so bullish about a few weeks ago. As the manufacturing activity picks up with the economic recovery shares of TXT are expected to out perform. It looks like they've already been out performing with a massive rally for the third quarter. We don't want to chase it here. Broken resistance near $15.00 should offer some support. I'm suggesting investors buy LEAPS on a dip at $15.25. We'll use a stop loss at $11.75 near the simple 200-dma. Our long-term target is the $30 region.

Company Info:
Textron Inc. (NYSE: TXT) is not only one of the world's best known multi-industry companies, it is a pioneer of the diversified business model. Founded in 1923, we have grown into a network of businesses with total revenues of $14.2 billion, and approximately 37,000 employees with facilities and presence in 29 countries, serving a diverse and global customer base. Headquartered in Providence, Rhode Island, U.S.A.,Textron is ranked 173rd on the FORTUNE 500 list of largest U.S. companies. Organizationally, Textron consists of numerous subsidiaries and operating divisions, which are responsible for the day-to-day operation of their businesses (source: company press release or website)

Buy-the-Dip trigger: $15.25

BUY the 2011 January 15.00 call (symbol: XUD-AC)

Chart of TXT:


Active Watch List Candidates:


BEAV $19.06 -0.51 -- BE Aerospace Inc.

BEAV surged to new 2009 highs near $21.00 last week. Our trigger at $16.00 looks like a long-way down but if the market really starts to correct this stock can move fast. More aggressive traders may want to consider buying a dip near $18.00. If triggered at $16.00 we'll use a stop loss at $13.40.

Buy-the-Dip trigger: $16.00

BUY the 2010 January $15.00 calls (symbol: BQV-AC)
or
BUY the stock at $16.00

Note: At $16.00 you could just buy the stock instead but the $15 calls will allow you more leverage on your investment.

Chart of BEAV:


COST $56.28 -1.15 -- Costco Wholesale

COST has begun to correct after hitting new highs around $58.80 last week. That big gap higher in early September is an air pocket just begging to get filled. A complete pull back toward $50 may not happen until after COST reports earnings on October 7th, 2009 (before the market's opening bell).

Our plan is to buy LEAPS on a dip at $51.50. If triggered we'll use a stop loss at $47.00. Our target is the $65.00 region.

Buy-the-Dip trigger: $51.50

BUY the 2010 January $50 calls (symbol: PRQ-AJ)

Chart of COST:


ERJ $23.35 -0.61 -- EMBRAER - Empresa Brasileira de Aeronáutica S.A.

The action in ERJ last week looks like a bearish reversal. Odds are growing that ERJ will correct back toward round-number support at $20.00. If triggered at $20.50 we'll use a stop loss at $17.75. Our target is the $29-30 zone. FYI: The P&F chart is bullish with a $42 target.

Buy-the-Dip trigger: $20.50

BUY the 2010 January $20.00 call (symbol: ERJ-AD)

Chart of ERJ:


ESV $41.25 -0.27 -- ENSCO Intl. Inc.

The rally in ESV stalled again near $43.00. Our plan has not changed. We want to buy LEAPS on a dip at $38.00. We'll use a stop loss at $34.90. The Point & Figure chart is bullish with a $55.00 target. We're going to aim for the $55-60 zone.

Buy-the-Dip trigger: $38.00

BUY the 2011 January $40 call (VKS-AH)
(More aggressive traders may want to trade January 2010 or March 2010 calls instead)

Chart of ESV:


FWLT $31.14 -1.09 -- Foster Wheeler AG

Right on cue FWLT is correcting and sharply too! The 50-dma near $28.50 and the exponential 200-dma near $28.00 should offer some technical support. The plan is to buy LEAPS on a dip at $29.00. We'll use a stop loss at $25.95. More aggressive traders may want to use a wider stop and may want to jump in at $31.00. Our bullish target is the $45-50 zone.

Buy-the-Dip trigger: $29.00

BUY the 2011 January $30.00 calls (symbol: ZHF-AF)

Chart of FWLT:


IGT $20.86 -0.14 --- Intl. Game Technology

IGT has been correcting for two weeks now. Shares are inching closer to our trigger at $19.50. If triggered we'll use a stop loss at $17.40. We only want to open small positions at least 1/2 our normal trade size. Our long-term targets are $25.00 (sell half) and $29.00 (sell half).

FYI: There was a huge amount of volume on the 2011 $20 CALL LEAPS on Friday.

Buy-the-Dip trigger: $19.50

BUY the 2011 January $20.00 call (VGG-AD)

Chart of IGT:


MEE $28.05 -1.13 -- Massey Energy Corp.

The correction in MEE has been pretty sharp this past week. The stock is now testing its 50-dma near $27.50. Our trigger to buy LEAPS is at $25.00. If triggered our stop loss is at $19.95.

NOTE: I would only open half a position at this time. If conditions warrant we can add to it later.

More conservative traders may want to use a stop near $21.75 instead. Our long-term target is the $40.00. Readers may want to consider the 2011 January calls instead.

Buy-the-Dip trigger: $25.00

BUY the 2010 January $25.00 call (MEE-AE)

Chart of MEE:


MTL $17.16 +0.14 -- MECHEL OAO

MTL soared to new 2009 highs last week. This stock can move fast and when it corrects it can drop even faster. The plan is to buy LEAPS or the stock on a dip at $13.25. We'll use a stop loss at $9.75. The Point & Figure chart is bullish with a $27 target. Our long-term target is also $27.00.

Buy-the-Dip trigger: $13.25

BUY the 2010 April $15.00 calls (symbol: MTL-DC)

or BUY the STOCK @ 13.25

Chart of MTL:


MTW $9.52 -0.20 -- Manitowoc Inc.

Shares of MTW appear to have formed a bearish double top in the last two weeks. That would suggest the next move is down. Currently our plan is to buy LEAPS or the stock at $8.00. The Point & Figure chart is bullish and the upside target is $23. I'm setting our long-term target at $17.00.

Buy-the-Dip trigger: $8.00

BUY the 2011 January $7.50 calls (symbol: VMT-AU)

or BUY the STOCK at $8.00

Chart of MTW:


SPW $61.45 -1.75 -- SPX Corp.

SPW just spent two weeks churning sideways but on Friday it began to breakdown. Odds are growing fast that we'll be triggered soon at $58.50. More conservative traders can wait for a dip closer to the $56.00-55.00 zone.

The Point & Figure chart is bullish with a target at $70. If triggered our long-term target is the $79.00 mark.

Buy-the-Dip trigger: $58.50

BUY the 2010 March $60 calls (symbol: SPW-CL)

Chart of SPW:


X $46.63 -1.33 United States Steel Corp.

X spiked to a new high at $51.65 and reversed. The steel stocks have been volatile this year and I'm counting on that volatility to continue. There is potential support at $45.00 but I'm setting our trigger to buy LEAPS at $41.00. Our stop loss is at $37.40. Our target is the $60-70 zone.

Buy-the-Dip trigger: $41.00

BUY the 2010 January $45 calls (symbol: FBJ-AI)

Chart of X: